Global Economics

Electric Cars: What's Needed Now

Better batteries and longer range make them viable. Next hurdle: a network of places to recharge on the go

They're finally for real. Plug-in electric vehicles are no longer consigned to the imaginations of the environmentally minded or fuel-price-shocked motorists. Since the beginning of this decade, innovations in lithium ion batteries and the materials used to make them have increased the range of electric cars and decreased the time needed for a recharge. Increased green awareness and the unpredictable behavior of oil prices are driving investment in electric car technology as never before.

Until now, all-electric vehicles have been a niche. A few tens of thousands are in use in municipal and university fleets, and several limited-edition luxury roadsters are available from upstarts such as Tesla and Venturi. Now that the vehicles themselves are reaching greater technical maturity, the biggest remaining hurdle is to create an infrastructure for recharging them on the go. Analysts caution that a widespread network of charge points remains many years away.

Upsurge in Europe

The problem isn't lack of opportunity. A recent study from researcher Frost & Sullivan forecasts that by 2015, Europe alone will see 250,000 all-electric vehicles on the roads. By then, the technology and marketing of electric vehicles will be such that sedans, family vans, and sports cars all will join the repertoire of available models. Major auto manufacturers in Europe, the U.S., and Asia are now teaming up with electronics companies to get these vehicles rolling. "Every day, there is another investor looking to get in on this," says Anjan Kumar, an India-based researcher who authored the Frost & Sullivan report.

Yet no matter how fast and long-running electric cars may become, sales won't take off unless a recharging infrastructure grows in tandem. It's a classic chicken-or-egg dilemma: Utilities won't invest in charge points if there aren't enough cars, but consumers won't buy vehicles until they have ample places to "fill up." The needed infrastructure also will be hugely expensive to build and put new stresses on the electrical grid. "It's going to be a drain on the system," says Stephanie Brinley, an analyst at market researcher AutoPacific.

Fortunately, automakers and utilities are talking a lot more than they did a decade ago, Brinley says. But discussions won't turn into concrete plans until there are profits to be made—something she warns is still years off. "Hybrids have been around for 10 years, and they're still not profitable," she notes.

Boon for Cities

The only path forward is gradually to bootstrap fleets and recharging networks. A handful of European cities are exploring this approach by setting up charge points and testing fleets of all-electric vehicles. After all, crowded and polluted cities are the ideal place for short-range, low-speed, zero-emission vehicles. Since January, Daimler (DAI) has used London as a testing ground for a fleet of 100 EV versions of its popular Smart ForTwo mini-car. And just last week, the company announced a deal with German energy utility RWE (RWEG.DE) to test 100 cars and install 500 recharge points in Berlin as part of a test project called "E-mobility Berlin."

One brave electric car company is even trying to reinvent the entire business model of the auto industry by turning personal transportation into something more like a subscription service. Starting in 2009, Palo Alto (Calif.) venture-backed startup Project Better Place will begin building and operating an electrical network capable of supporting tens of thousands of cars. Customers will buy a monthly mileage plan, and in turn will get recharge points installed at their homes and workplaces. For trips of more than 120 miles (193km), they'll be able to pull into automated battery swap stations and replace depleted batteries in less time than it takes to fill up a tank of gas.

Tipping Point

By 2011, Project Better Place aims to have 100,000 exchange stations and half a million recharge units up and running. In partnership with Renault-Nissan (RENA.PA), which will provide the vehicles, Better Place already has signed agreements with Israel and Denmark—two countries where fuel prices are high and domestic travel distances are relatively short—to build networks (BusinessWeek.com, 1/25/08).

It's too early to tell how or when electric cars will become a viable mass-market business, but change is in the air. "We're just getting to the tipping point now," says Tim Urquhart, an analyst at market researcher Global Insight. Urquhart says government subsidies for the transition to electric vehicles and tougher pollution regulations for petroleum vehicles are the carrots and sticks needed to force the auto industry to reposition itself for a new kind of profitability that's gentler on the environment.

For a look at some of the newest electric cars and concepts, see our slide show.